I live in Thousand Oaks California. I have one single family rental unit(zillow estimate $650000). I have a equity of $250,000. I don't have positive cash flow in this property. I have one rental condo unit in Simi Valley with position cash flow of $150/month. The property is worth $175000 (Equity - $60,000). I am planning sell my Single family home and invest in Phoenix, AZ for multi family unit. Please suggest how do I need plan out to build my rental empire
Once you have a 1031 exchange planned out, work with a good mortgage banker to analyse the scenario and make sure your funding for the next property is secure. Then you need to simultaneously identify a new property and sell this one.
Its lot more complicate, but working with a good team will get you through this and avoid capital gains on the property sale.
Upen Patel, Mortgage Banker
Federal NMLS# 1374243
@Sathiya Deva , you've actually got several things going for you that could help you to transition your portfolio into the PHX area and do it with both tax free and tax sheltered monies.
The sale of your primary residence can be tax free if timed right. And the sale of your two investment properties could go into 1031 exchanges to tax defer the profits and let you buy a multi family property that you reside in part of.
the 1031 exchange allows you sell your investment property, use the proceeds to buy other investment property worth at least as much as you sell and defer all tax on the profits into the new property. You'll never pay that tax as long as you own the replacement property or continue to do exchanges into your new property.
And it is possible to purchase a property that can also be partly used as your primary residence providing the valuations are right. there's some planning that needs to happen and some deadlines and targets you need to pay attention to but what you're describing is a very common scenario from a 1031 perspective..
Perhaps the largest issue is that of the current state of financing for a multi-family mixed us property. Rates and availability of financing for such a product is always fluctuating and that's a question that @Upen Patel can certainly answer for you.
You should be able to cashflow nicely in Phoenix with just the equity. I am only passingly familiar with 1031 exchanges but my thought was that if you want to to do a 1031 you would have to buy a property(s) worth the same or more. if that is the case then you would, I think, have to buy a property with a greater value then then one you are selling (>650k).
Here in phoenix 65k will get you 10-15 units rented at @550 a month. Gross rents assuming 13 units) would be coming in @ 85.8kk using the 50% rule you would have @ 3.575k after expenses. if you borrow 400k at 5% with a 20 year am your payment would come in @ 2.639k leaving you a cash flow of roughly $900 a month.
If you forgo the 1031, eat that tax and and invest the 250k you should be able to get a 4 plex, rented at 550 per unit yielding 2.2k in gross rents netting 1.1k (using the 50% rule) but you don't have all the other units rented out and tenants paying the mortgage for you building equity.
Note these are rough numbers but my wife recently helped a client buy a 8 plex here in PHX and the buyer looked at a lot of properties over an extended period before finding one that worked for them. I would recommend finding what you want to purchase here in the valley before selling anything in CA.
In the event you need to go that direction in order to secure just the right PHX property you may want to think about a reverse exchange. Since the statutory order of a 1031 requires that you sell before you buy, a reverse exchange allows you to control before you sell and then buy what you have under control after you sell. Your 1031 intermediary will create a holding company (an exchange accommodating title holder EAT) to take title to the property you want to buy and secure it for you and hold it for you with guarantees to you and financing provided by you. It has some very stringent rules that must be adhered and it is more expensive than a straight exchange but it can be the answer to getting a quality property in a heated market.
The key to the financing is that the loan must be made to the EAT non-recourse but secured by you. A portfolio lender who understands 1031 reverse exchanges and your market is generally who you are looking for.
You gave a lot of equity in your hands! You could get several rentals with that large down payment. Since it seems you have a two year mortgage history, 75% of the rental income will count towards your income if you need to.